Venoco (VQ)

The companys 2010 exploration,
exploitation and development capital expenditures are forecast to be $180
million. Approximately $73 million (41%) of the capital budget will be deployed
in the Sacramento Basin, $72 million (40%) in Southern California, $9 million
(5%) in Texas and the remaining $26 million (14%) going toward exploration
activities related to the companys onshore Monterey shale development in
Southern California.

Our focus in 2010 will shift more
toward development of our robust inventory of oil projects. Advancing our oil
projects in Southern California requires more time for implementation than the
natural gas projects weve pursued in the Sacramento Basin in recent years. As
a result much of the production growth from next years capital program will
not be realized until after 2010, explained Mr. Marquez. Our 2010
production guidance is the same as 2009  20,250 BOE per day.

Drilling and workover activity
during 2010 in the Sacramento Basin will be similar to 2009 activity levels. In
Southern California, the company plans to drill three onshore wells at West
Montalvo, two wells at the Sockeye field, and perform five workovers and
recompletions on wells at South Ellwood. In Texas, the company plans to
participate in up to four new development wells and return five wells to
production.

3

Next year, we plan to perform our
first hydraulic fractures of our offshore Monterey shale wells at Sockeye,
commented Mr. Marquez. We believe one of the Monterey shale zones producing
at Sockeye is highly analogous to areas weve targeted with our onshore
Monterey shale leasing. These wells appear to be ideal candidates for
fracturing, but modern fracture technology has never been tested on them.

Venoco expects to drill five wells
next year as part of the companys multi-year development plan for the onshore
Monterey shale formation that is extensive in Southern California. The company
has an onshore acreage position approaching 100,000 net acres with plans to
increase that position to around 200,000 net acres by the end of next year.

As a company we have been
operating in Southern California for over 15 years, and have been producing
from the offshore Monterey shale for 12 years. We know the formation can
produce oil; our task next year is to advance the drilling and completion
science that will enhance the productive capacity from the shale, said Mr. Marquez.

We have developed an active capital expenditure program to take advantage of our extensive inventory of drilling prospects and other
projects. Our development, exploitation and exploration capital expenditure budget for 2009 is $150.0 million, of which approximately $53.2 million (excluding changes in accrued capital
expenditures) was expended in the first three months of 2009. We expect to spend approximately 54% of the budgeted amount on projects in the Sacramento Basin, 28% in Southern California, 6% in Texas
and 12% for exploration projects in a variety of areas. We have entered into hedging arrangements to secure floors on 100% of our forecast 2009 production. The price floors are intended to ensure a
minimum revenue stream to support an active capital expenditure program and satisfy our other obligations. The aggregate levels of capital expenditures for the remainder of 2009, and the allocation of
those expenditures, are dependent on a variety of factors, including the availability of capital resources to fund the expenditures and changes in our business assessments as to where our capital can
be most profitably employed. Accordingly, the actual levels of capital expenditures and the allocation of those expenditures may vary materially from our estimates. The following summarizes certain
significant aspects of our 2009 capital spending program:

Southern CaliforniaExploitation and Development

Our primary focus in Southern California in 2009 is on development activities in the West Montalvo field, where we are continuing an
aggressive workover, recompletion and return to production program that we began when we acquired the field in May 2007. During the first three months of 2009, we completed two wells that were spud
during the fourth quarter of 2008 and performed three workovers and recompletions. We plan to drill two additional wells in the West Montalvo field later in 2009.

In
the Sockeye field, we continue to implement and optimize our waterflood program from platform Gail. During the first three months of the year, we spud one well at Sockeye. We are
currently in the process of completing the well, which, if successful, will produce from the Monterey formation and inject into the Upper Topanga formation to expand the waterflood.

In
the South Ellwood field, the permitting process continues for our full-field development project. We anticipate receiving a final environmental impact report relating to
the project in 2009 and for the project approval hearings to begin thereafter. Key components of the project include an extension of the current lease boundary (which would effectively double the size
of the existing lease area) and the installation of an onshore oil transport pipeline to replace the existing barge. We may pursue permits necessary for the pipeline separately from those required for
the overall project. Development of the lease extension area can be accomplished from the field's existing platform. We have been pursuing the pipeline permitting process and acquiring
rights-of-way. Our 2009 capital expenditure budget includes a small amount for continued work towards pipeline permitting and acquisition of
rights-of-way.

Sacramento BasinExploitation and Development

In the Sacramento Basin, we continue to pursue our infill drilling program in the greater Grimes and Willows fields. Currently, we have
three drilling rigs and seven workover/completion rigs working in the basin and expect to drill over 70 new wells and perform more than 100 workovers and recompletions there in 2009. During the first
three months of 2009, we
spudded 24 wells, completed 18 (including wells spud in 2008), and performed 57 workovers and recompletions in the basin.

We
also continue to pursue our hydraulic fracturing program in the basin, a program that could potentially enhance production and reserves significantly. We initiated the program in
November 2007 and have fractured over 70 wells since the start of the program. We are encouraged by the results and continue to analyze the fracs in order to optimize future fracture simulations in
the basin. We plan to fracture approximately 12 wells in the basin during 2009, but did not fracture any wells during the first quarter.

TexasExploitation and Development

In Texas, our focus has shifted from the recently sold Hastings complex to the development of our other Texas properties. Our 2009
capital expenditure budget includes capital for up to three new development wells and approximately seven workovers and recompletions. During the first three months of 2009, we performed one workover
in Texas.

Following
the sale of the Hastings complex, our largest operated field in Texas is now the Manvel field. We intend to utilize the knowledge and experience we gained operating the
Hastings complex to redevelop this field. This program will consist mainly of returning idle wells to production, increasing the lift capacity of existing wells, working over and recompleting existing
wells in different producing sands, upgrading surface facility fluid handling capacity and increasing water injection capabilities. In addition, we are currently in the process of unitizing the Manvel
field and believe it is a solid candidate for a CO2 flood operation.

Exploration Activities

During the first three months of the year we spudded two exploration wells in Washington. One of those wells has been scheduled to be
plugged and abandoned and the other is currently being evaluated.

We have developed an active capital expenditure program to take advantage of our extensive inventory of drilling prospects and other
projects. Our exploration, exploitation and development capital expenditures, including amounts accrued and unpaid at December 31, 2008, were $301.8 million in 2008, down from
$310.1 million in 2007, and we expect that they will be approximately $150.0 million in 2009. We expect to spend approximately 49% of the amount budgeted for 2009 on projects in the
Sacramento Basin, 23% in the Southern California region, 3% in Texas, 12% for exploration projects in a variety of areas, and the balance for capitalized G&A. We have entered into hedging arrangements
to secure floors on 101% of our forecast 2009 production. The
price floors are intended to ensure a minimum revenue stream to sustain an active capital expenditure program and satisfy our other obligations. The aggregate levels of capital expenditures for 2009,
and the allocation of those expenditures, are dependent on a variety of factors, including the availability of capital resources to fund the expenditures and changes in our business assessments as to
where our capital can be most profitably employed. Accordingly, the actual levels of capital expenditures and the allocation of those expenditures may vary materially from our estimates. The following
summarizes certain significant aspects of our capital spending program in 2008 and 2009:

Southern CaliforniaExploitation and Development

In Southern California, we drilled four new wells in 2008, including one at platform Grace that was spud in 2007 and plugged during the
first quarter of 2008. The remaining three wells were all in the West Montalvo field. The first, a successful onshore development well, was spud in September and completed in November. The second,
also a successful onshore well, was spud in October and was completed and brought on to production in January 2009. The third well is an offshore well drilled from an onshore surface location. This
well was spud in December 2008 and is expected to be completed and placed on production in the first half of March 2009. We have projects ongoing to increase our gas handling capacity at
West Montalvo and we do not expect these wells to produce at full capacity until this work is completed later in March. We also performed 19 workovers and recompletions in Southern California during
2008. This work included six workovers and eight wells returned to production at the West Montalvo field, four workovers at the Sockeye field, and one

workover
at the South Ellwood field. In 2009, we plan to drill two additional wells in the West Montalvo field and one new well at the Sockeye field. We also plan to conduct wellwork as part of
waterflood optimizations at the Sockeye and Beverly Hills West fields.

In
the Sockeye field, we continue to implement our waterflood program from platform Gail and are working on the evaluation and design of a possible expansion of the program. We are also
continuing to evaluate a possible expansion of our horizontal and multi-lateral well drilling activities to the Monterey formation in the field.

In
the South Ellwood field, the permitting process continues for our full-field development project in the South Ellwood field. We anticipate receiving a final environmental
impact report relating to the project in 2009 and for the project approval hearings to begin thereafter. Key components of the project include an extension of the current lease boundary (which would
effectively double the size of the existing lease area) and the installation of an onshore oil transport pipeline to replace the existing barge. Development of the lease extension area can be
accomplished from the field's existing platform. We have been pursuing the pipeline permitting process and acquiring rights-of-way. Our 2009 capital expenditure budget includes
a small
amount for continued work towards pipeline permitting and acquisition of rights-of-way.

Sacramento BasinExploitation and Development

In the Sacramento Basin, we continue to pursue our infill drilling program in the greater Grimes and Willows fields. We drilled 112
wells in the basin in 2008 (81% of which were productive) and performed 144 workovers and recompletions. We operated during the majority of 2008 with five drilling rigs in the basin. For a short
period of time at the end of 2008 and beginning of 2009 we operated with six drilling rigs. As of February 2009, we have three drilling rigs and seven workover/completion rigs working in the basin. We
expect to drill over 70 new wells and perform more than 100 workovers and recompletions there in 2009. As of December 31, 2008, we had identified 530 drilling locations in the basin, and we
anticipate identifying additional locations as we pursue exploitation and development opportunities there.

We
continue to test and evaluate potential downspacing opportunities in the basin as well as new methods of improving productivity and reducing drilling costs. Of the 112 wells drilled
in the basin during 2008, 45 were drilled on 40-acre spacing, 53 were drilled on 20-acre spacing, and 14 were drilled on 10-acre spacing. We also initiated a
hydraulic fracturing program during 2008 to targets in the Forbes and deeper formations of the basin. We fractured 70 wells during 2008. We have been encouraged by the results and continue to analyze
those results in order to optimize future fracture simulations in the basin. As of December 31, 2008, our acreage position in the basin had grown to approximately 208,000 net acres (245,000
gross).

TexasExploitation and Development

In Texas, our primary focus in 2008 was the redevelopment of the Hastings complex in preparation for the sale of our principal
interests in the complex to Denbury. Other Texas activity included the drilling of three new wells. One of these wells was a development well in the Manvel field that was spud in December 2008. We
drilled across a fault and plan to use the well for a sidetrack at a later date. The second well was a successful exploration gas well drilled in the South Liberty field. The third well, also an
exploration well, was spud in August. The well was unsuccessful and we plan to plug and abandon it in the first quarter of 2009. We also performed 170 workovers and recompletions in Texas during 2008,
of which 154 were completed at the Hastings complex and 12 were completed in the Manvel field. In 2009, we plan to drill three wells and perform approximately seven workovers and recompletions in our
Texas fields.

We have developed an active capital expenditure program to take advantage of our extensive inventory of drilling prospects and otherprojects. Our exploration, exploitation and development capital expenditures, including amounts accrued and unpaid at December 31, 2008, were $301.8 million in 2008, down from$310.1 million in 2007, and we expect that they will be approximately $150.0 million in 2009. We expect to spend approximately 49% of the amount budgeted for 2009 on projects in theSacramento Basin, 23% in the Southern California region, 3% in Texas, 12% for exploration projects in a variety of areas, and the balance for capitalized G&A. We have entered into hedging arrangementsto secure floors on 101% of our forecast 2009 production. Theprice floors are intended to ensure a minimum revenue stream to sustain an active capital expenditure program and satisfy our other obligations. The aggregate levels of capital expenditures for 2009,and the allocation of those expenditures, are dependent on a variety of factors, including the availability of capital resources to fund the expenditures and changes in our business assessments as towhere our capital can be most profitably employed. Accordingly, the actual levels of capital expenditures and the allocation of those expenditures may vary materially from our estimates. The followingsummarizes certain significant aspects of our capital spending program in 2008 and 2009:

Southern CaliforniaExploitation and Development

In Southern California, we drilled four new wells in 2008, including one at platform Grace that was spud in 2007 and plugged during thefirst quarter of 2008. The remaining three wells were all in the West Montalvo field. The first, a successful onshore development well, was spud in September and completed in November. The second,also a successful onshore well, was spud in October and was completed and brought on to production in January 2009. The third well is an offshore well drilled from an onshore surface location. Thiswell was spud in December 2008 and is expected to be completed and placed on production in the first half of March 2009. We have projects ongoing to increase our gas handling capacity atWest Montalvo and we do not expect these wells to produce at full capacity until this work is completed later in March. We also performed 19 workovers and recompletions in Southern California during2008. This work included six workovers and eight wells returned to production at the West Montalvo field, four workovers at the Sockeye field, and one

46

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workoverat the South Ellwood field. In 2009, we plan to drill two additional wells in the West Montalvo field and one new well at the Sockeye field. We also plan to conduct wellwork as part ofwaterflood optimizations at the Sockeye and Beverly Hills West fields.

Inthe Sockeye field, we continue to implement our waterflood program from platform Gail and are working on the evaluation and design of a possible expansion of the program. We are alsocontinuing to evaluate a possible expansion of our horizontal and multi-lateral well drilling activities to the Monterey formation in the field.

Inthe South Ellwood field, the permitting process continues for our full-field development project in the South Ellwood field. We anticipate receiving a final environmentalimpact report relating to the project in 2009 and for the project approval hearings to begin thereafter. Key components of the project include an extension of the current lease boundary (which wouldeffectively double the size of the existing lease area) and the installation of an onshore oil transport pipeline to replace the existing barge. Development of the lease extension area can beaccomplished from the field's existing platform. We have been pursuing the pipeline permitting process and acquiring rights-of-way. Our 2009 capital expenditure budget includesa smallamount for continued work towards pipeline permitting and acquisition of rights-of-way.

Sacramento BasinExploitation and Development

In the Sacramento Basin, we continue to pursue our infill drilling program in the greater Grimes and Willows fields. We drilled 112wells in the basin in 2008 (81% of which were productive) and performed 144 workovers and recompletions. We operated during the majority of 2008 with five drilling rigs in the basin. For a shortperiod of time at the end of 2008 and beginning of 2009 we operated with six drilling rigs. As of February 2009, we have three drilling rigs and seven workover/completion rigs working in the basin. Weexpect to drill over 70 new wells and perform more than 100 workovers and recompletions there in 2009. As of December 31, 2008, we had identified 530 drilling locations in the basin, and weanticipate identifying additional locations as we pursue exploitation and development opportunities there.

Wecontinue to test and evaluate potential downspacing opportunities in the basin as well as new methods of improving productivity and reducing drilling costs. Of the 112 wells drilledin the basin during 2008, 45 were drilled on 40-acre spacing, 53 were drilled on 20-acre spacing, and 14 were drilled on 10-acre spacing. We also initiated ahydraulic fracturing program during 2008 to targets in the Forbes and deeper formations of the basin. We fractured 70 wells during 2008. We have been encouraged by the results and continue to analyzethose results in order to optimize future fracture simulations in the basin. As of December 31, 2008, our acreage position in the basin had grown to approximately 208,000 net acres (245,000gross).

TexasExploitation and Development

In Texas, our primary focus in 2008 was the redevelopment of the Hastings complex in preparation for the sale of our principalinterests in the complex to Denbury. Other Texas activity included the drilling of three new wells. One of these wells was a development well in the Manvel field that was spud in December 2008. Wedrilled across a fault and plan to use the well for a sidetrack at a later date. The second well was a successful exploration gas well drilled in the South Liberty field. The third well, also anexploration well, was spud in August. The well was unsuccessful and we plan to plug and abandon it in the first quarter of 2009. We also performed 170 workovers and recompletions in Texas during 2008,of which 154 were completed at the Hastings complex and 12 were completed in the Manvel field. In 2009, we plan to drill three wells and perform approximately seven workovers and recompletions in ourTexas fields.

We have developed an active capital expenditure program to take advantage of our extensive inventory of drilling prospects and other
projects. Our development, exploitation and exploration capital expenditure budget for 2008 is $300.0 million, of which approximately $210.4 million (excluding changes in accrued capital
expenditures) was expended in the first nine months of 2008. We expect to spend approximately 55% of the budgeted amount on projects in the Sacramento Basin, 22% in Southern California and 15% in
Texas, with the remaining 8% going towards exploration projects in a variety of areas. Our 2009 development, exploitation and exploration capital expenditure budget is $300 million, of which
approximately 50% is expected to be deployed in the Sacramento Basin, 19% in Southern California and 4% in Texas, with the remainder going towards exploration 17% and leasehold and capitalized general
and administrative expenses 10%. We have a significant inventory of projects and should market conditions become more favorable we could potentially look to increase our capital spending later in
2009.

The
aggregate levels of capital expenditures for the remainder of 2008 and 2009, and the allocation of those expenditures, are dependent on a variety of factors, including the
availability of capital resources to fund the expenditures and changes in our business assessments as to where our capital can be most profitably employed. Accordingly, the actual levels of capital
expenditures and the allocation of those expenditures may vary materially from our estimates. The following summarizes certain significant aspects of our 2008 capital spending program and the outlook
for 2009:

Southern CaliforniaExploitation and Development

Our primary focus in Southern California in 2008 is on development activities in the West Montalvo field, where we are continuing an
aggressive workover, recompletion and return to production program that we began when we acquired the field in May 2007. We worked over six wells

and
returned seven wells to production during the first nine months of the year and plan to return an additional two wells to production during the fourth quarter. We also plan to drill three new
development wells in the field during the year. We spud the first of these wells in late September, the second in October, and anticipate spudding the third well in November. We plan to drill three
additional infill wells on the onshore portion of the field in 2009.

In
the Sockeye field, we continue to implement our waterflood program from platform Gail and are working on the evaluation and design of a possible expansion of the program. During the
first nine months of the year, we redrilled one well as an injector and performed four successful workovers in the field. We also continue to develop our plans for additional infill development
drilling, waterflood expansion and natural gas production. We are also planning to fracture a Monterey well at Sockeye in 2009.

In
the South Ellwood field, the permitting process continues for our full-field development project. We received the draft environmental impact report for this project from
the California State Lands Commission in June. We have provided comments on the report and are now focused on the project approval hearings which we expect to commence during either the fourth quarter
of 2008 or first quarter of 2009. Key components of the project include an extension of our current lease area (which would effectively double the size of the existing lease area) and the installation
of an onshore oil transport pipeline to replace the existing barge. Development of the extended lease area can be accomplished from the field's existing platform. We have been working on the pipeline
permitting process and right-of-way for the pipeline in 2008 and our 2009 budget includes expenditures for certain long-lead items for the full-field development project in
anticipation of regulatory approvals.

Sacramento BasinExploitation and Development

In the Sacramento Basin, we continue to pursue our infill drilling program in the greater Grimes and Willows fields. We currently have
five drilling rigs and five
workover/completion rigs working in the basin and expect to drill approximately 120 new wells and perform more than 125 workovers and recompletions there during 2008. In the first nine
months of 2008, we spudded 84 wells, completed 61 wells, and performed 98 workovers and recompletions in the basin.

We
also continue to pursue our hydraulic fracturing program in the basin, a program that could potentially enhance production and reserves significantly. We initiated the program in
November 2007 and have fractured 47 wells during the first nine months of 2008. We are encouraged by the early success of the program and continue to analyze results in order to optimize
future fracture stimulations in the basin. We plan to fracture approximately 75 wells in the basin during 2008. Our 2009 budget will generate similar drilling, workover and fracturing
activity next year.

TexasExploitation and Development

In Texas, our focus in 2008 is on the continuation of our workover and recompletion programs in the Hastings complex and the Manvel
field. During the first nine months of the year, we performed 83 workovers and recompletions and converted 14 wells into injectors at the Hastings complex. We are also focused on
lowering operating expenses in the Hastings complex as we reduce our remediation and redevelopment activities there. At Manvel, we performed seven workovers and converted one well to an injector
during the first nine months of the year. During the fourth quarter, we plan to continue our redevelopment work at Hastings and Manvel and to drill up to three new development wells in our
Texas fields, including two at Manvel. Our 2009 budget includes capital for four new development wells, including two at Manvel.

During the first nine months of the year we've drilled, or started drilling, two higher impact exploration wells in Texas and six in
the Sacramento Basin. We plan to drill a total of ten higher impact exploration wells during 2008.

We have developed an active capital expenditure program to take advantage of our extensive inventory of drilling prospects and other
projects. Our development, exploitation and exploration capital expenditure budget for 2008 is $235.0 million, of which approximately $143.8 million (excluding changes in accrued capital
expenditures) was expended in the first half of the year. We expect to spend approximately 60% of the budgeted amount on projects in the Sacramento Basin, 25% in Southern California and 15% in Texas.
Included in the budget is $25.0 million for exploration projects. If oil and natural gas prices remain at high levels, we may increase our capital expenditure budget to accelerate the
development of some projects. The aggregate levels of capital expenditures for 2008, and the allocation of those expenditures, are dependent on a variety of factors, including the availability of
capital resources to fund the expenditures and changes in our business assessments as to where our capital can be most profitably employed. Accordingly, the actual levels of capital expenditures and
the allocation of those expenditures may vary materially from our estimates. The following summarizes certain significant aspects of our 2008 capital spending program:

Southern CaliforniaExploitation and Development

Our primary focus in Southern California in 2008 is on development activities in the West Montalvo field, where we are continuing an
aggressive workover, recompletion and return to production program that we began when we acquired the field in May 2007. We worked over five wells and returned five wells to production during the
first half of the year and plan to return an additional four wells to production later this year. We also plan to drill two new development wells in the field during the second half of the year. We
plan to commission a seismic survey to assist us in designing and optimizing an infill development program. This survey will most likely be conducted in late 2008 or early 2009.

In
the Sockeye field, we continue to implement our waterflood program from platform Gail and are working on the evaluation and design of a possible expansion of the program. We redrilled
one well

as
an injector and performed two successful workovers in the field during the second quarter. Three additional workovers are planned in view of the favorable production response from our initial
efforts. We also continue to develop our plans for additional infill development drilling, waterflood expansion and natural gas production.

In
the South Ellwood field, the permitting process continues for our full-field development project. We received the draft environmental impact report for this project from
the California State Lands Commission in June, and will now focus on the project approval hearings which we expect to commence later this year. Key components of the project include an extension of
our current lease area (which would effectively double the size of the existing lease area) and the installation of an onshore oil transport pipeline to replace the existing barge. Development of the
extended lease area can be accomplished from the field's existing platform.

Sacramento BasinExploitation and Development

In the Sacramento Basin, we continue to pursue our infill drilling program in the greater Grimes and Willows fields. We currently have
five drilling rigs and five workover/completion rigs working in the basin and expect to drill over 110 new wells and perform more than 125 workovers and recompletions there during 2008. In the first
half of 2008, we spudded 59 wells, completed 44 wells, and performed 55 workovers and recompletions in the basin.

We
also continue to pursue our hydraulic fracturing program in the basin, a program that could potentially enhance production and reserves significantly. We initiated the program in
November 2007 and we fractured 35 wells during the first half of 2008. We are encouraged by the success of these early wells and are currently conducting a comprehensive analysis of the results in
order to optimize future fracture stimulations in the basin. We currently plan to fracture more than 60 wells in the basin during the year.

TexasExploitation and Development

In Texas, our focus in 2008 is on the continuation of our workover and recompletion programs in the Hastings complex and the
Manvel field. During the first half of the year, we performed 61 workovers and recompletions and converted 14 wells into injectors at the Hastings complex. We are also focused on lowering
operating expenses in the Hastings complex as we reduce our remediation and redevelopment activities there. At Manvel, we performed five workovers and converted one well to an injector during the
first half of the year and have seen daily production increase by 22% from the first quarter to the second. During the second half of the year, we plan to continue our work at Hastings and Manvel and
to drill up to three new development wells in other Texas fields.

Higher Impact Exploration Activities

In 2008, we expect to drill as many as fifteen higher impact exploration wells. During the first half of the year we drilled one higher
impact exploration well in Texas and three in the Sacramento Basin. The Texas well is a new discovery in our South Liberty field.

We have developed an active capital expenditure program to take advantage of our extensive inventory of drilling prospects and other projects. In 2008, we expect
that our exploration, exploitation and development capital expenditures will be approximately $235.0 million, of which approximately $63.7 million (excluding changes in accrued capital
expenditures) was expended in the first quarter of the year. We expect to spend approximately 60% of the budgeted amount on projects in the Sacramento Basin, 25% in Southern California and 15% in
Texas. Included in the budget is $25.0 million for exploration projects. The aggregate levels of capital expenditures for 2008, and the allocation of those expenditures, are dependent on a
variety of factors, including the availability of capital resources to fund the expenditures and changes in our business assessments as to where our capital can be most profitably employed.
Accordingly, the actual levels of capital expenditures and the allocation of those expenditures may vary materially from our estimates. The following summarizes certain significant aspects of our
capital spending program in 2008:

Southern CaliforniaExploitation and Development

Our primary focus in Southern California in 2008 is on development activities in the West Montalvo field, where we are continuing an aggressive workover,
recompletion and return to production program that we began when we acquired the field in May 2007. In the first quarter of 2008, we returned three wells to production and worked over two wells in the
field. We plan to drill two new development wells in the field later in 2008. We also plan to commission a seismic survey to assist us in designing and optimizing an infill development program.

In
the Sockeye field, we continue to implement our waterflood program from platform Gail and are working on the evaluation and design of a possible expansion of the program. We are also
continuing to evaluate a possible expansion of our horizontal and multi-lateral well drilling activities to the Monterey formation in the field.

26

In
the South Ellwood field, the permitting process continues for our full-field development project. Key components of the project include an extension of our current field
area (which would effectively double the size of the existing field) and the installation of an onshore oil transport pipeline to replace the existing barge. Development of the extended lease area can
be accomplished from our existing platform, platform Holly. We anticipate receiving the environmental impact report for this project in 2008 with project approval and startup expected in 2009.

Sacramento BasinExploitation and Development

In the Sacramento Basin, we continue to pursue our infill drilling program in the greater Grimes and Willows fields. We currently have five drilling rigs and five
workover/completion rigs working in the basin and expect to drill over 110 new wells and perform more than 125 workovers and recompletions there during 2008. In the first quarter of 2008, we spudded
29 wells, completed 31 wells, and performed 29 workovers and recompletions in the basin.

We
also continue to pursue our hydraulic fracturing program in the basin, a program that could potentially enhance production and reserves significantly. We initiated the program in
November 2007 and we fractured 16 wells during the first quarter of 2008. We are encouraged by the success of these early wells and currently plan to fracture more than 50 wells in the basin during
the year.

TexasExploitation and Development

In Texas, our focus in 2008 is on the continuation of our workover and recompletion programs in the Hastings complex and the Manvel field. In the first quarter,
we performed 29 workovers and recompletions in Hastings and three in Manvel. We are also focused on lowering operating expenses in the Hastings complex as we reduce our remediation and redevelopment
activities there.

Higher Impact Exploration Activities

In 2008, we expect to drill as many as fifteen higher impact exploration wells, including ten in the Sacramento Basin, three in Southern California and two in
Texas. We spudded one higher impact exploration well in Texas during the first quarter.

We have developed an active capital expenditure program to take advantage of our extensive inventory of drilling prospects and other projects. Our exploration,
exploitation and development capital expenditures, including amounts accrued and unpaid at December 31, 2007, were $310.1 million in 2007, up from $189.2 million in 2006, and we
expect that they will be approximately $235.0 million in 2008. We expect to spend approximately 55% of the budgeted amount on projects in the Sacramento Basin, 30% in the Coastal California
region and 15% in Texas. Included in the budget is $25.0 million for exploration projects. The aggregate levels of capital expenditures for 2008, and the allocation of those expenditures, are
dependent on a variety of factors, including the availability of capital resources to fund the expenditures and changes in our business assessments as to where our capital can be most profitably
employed. Accordingly, the actual levels of capital expenditures and the allocation of those expenditures may vary materially from our estimates. The following summarizes certain significant aspects
of our capital spending program in 2007 and 2008:

Coastal CaliforniaExploitation and Development

In the coastal California area, we drilled five new wells in 2007 (including one higher impact exploration well), all of which were productive. We also performed
eleven workovers and recompletions. In 2008, we plan to drill three wells and perform five workovers and recompletions in the area. Our primary focus is on development activities in the West Montalvo
field. Since acquiring the field in May 2007, we have drilled one well and initiated an aggressive workover, recompletion and return to production program on existing wells, a program that included
eight workovers in 2007. We plan to continue the program in 2008 and to drill two to three new development wells in the field, including one offshore well (which will be drilled from an onshore
location). We also plan to commission a seismic survey to assist in designing and optimizing an infill development program.

In
the Sockeye field, we continue to implement our waterflood program from platform Gail and are working on the evaluation and design of a possible expansion of the program. We are also
continuing to evaluate a possible expansion of our horizontal and multi-lateral well drilling activities to the Monterey formation in the field. In the Santa Clara field, we pursued a plan to return
platform

46

Grace
to production in 2007, redrilling three wells with limited success. Further drilling from the platform has been suspended pending additional geologic and engineering review.

In
the South Ellwood field, the permitting process continues for our full-field development project. Key components of the project include an extension of our current field
area (which would effectively double the size of the existing field) and the installation of an onshore oil transport pipeline to replace the existing barge. Development of the extended lease area can
be
accomplished from our existing platform, platform Holly. We anticipate receiving the draft environmental impact report for this project in the first half of 2008 with project approval and startup
expected in 2009.

Sacramento BasinExploitation and Development

In the Sacramento Basin, we continue to pursue our infill drilling program in the greater Grimes and Willows fields. We drilled 122 wells in the basin in 2007
(80% of which were productive) and performed 113 workovers and recompletions. Of the 122 completed wells, 60 were drilled to non-proved locations and are therefore considered "exploratory
wells" as defined in SEC Regulation S-X; we consider two of those wells to be higher-impact exploration wells. We currently have five drilling rigs and five workover/completion rigs
working in the basin and expect to drill over 110 new wells and perform more than 125 workovers and recompletions there in 2008. As of December 31, 2007, we had identified 520 drilling
locations in the basin, and we anticipate identifying additional locations as we pursue exploitation and development opportunities there.

We
continue to test and evaluate potential downspacing opportunities in the basin as well as new methods of improving productivity and reducing drilling costs. In particular, we have
initiated a hydraulic fracturing program targeting the Forbes and deeper formations, a program that could potentially enhance production and reserves significantly. The strategy of using hydraulic
fracturing to enhance oil and natural gas production and recovery is a well established and proven process, although we have not used it in our existing completions and, to our knowledge, it has not
been widely used in the basin by other operators. We initiated a fracture stimulation program by testing the process on three wells in November 2007. Although the production history on the
three test wells is limited, early indications of the potential from fracturing are encouraging. We currently plan to perform between 20 and 50 fractures in 2008, but this estimate could change
significantly depending on the success of the program. As of December 31, 2007, our acreage position in the basin had grown to approximately 193,000 net acres (236,000 gross).

TexasExploitation and Development

In Texas, we drilled nine new wells in 2007, all of which were productive, and performed 253 workovers and recompletions. In 2008, we plan to drill five wells and
perform over 150 workovers and recompletions there.

Our
focus in Texas has been on the redevelopment of the Hastings complex. This program has consisted principally of returning idle wells to production, increasing the lift capacity of
existing wells, working over and recompleting existing wells in different producing sands, significantly upgrading surface facility fluid handling capacity and increasing water injection capabilities.
In addition, we drilled five infill replacement wells in the Hastings complex in 2007, targeting unswept and undepleted sands.
In 2008, we expect to continue our workover and recompletion program in an effort to further increase production and reserves. We also will focus on lowering operating expenses in 2008 as we reduce
our remediation and redevelopment activities at the complex.

We
also initiated a workover and recompletion program in the Manvel field, which produces from the same formation and exhibits operating characteristics that are similar to those of the
Hastings complex. In 2007, we performed 23 workovers and recompletions and focused on upgrading facilities to handle greater production volumes. In 2008, we plan to accelerate our workover
program and to drill up to three development wells. Our plans in Texas for 2008 also include drilling two to three additional

47

development
wells in some of our other fields to demonstrate and assess new exploitation opportunities.

Higher Impact Exploration Activities

In addition to the exploitation and development activities described above, we devoted approximately $14.4 million to higher impact exploration activities
in 2007, including $5.8 million on drilling. We generally consider a well to be a higher impact exploration well when it is either a new field wildcat or a new-pool test (i.e., a
well on a structural feature or other type of trap already producing oil or natural gas but outside the known limits of the producing area). We drilled three higher impact exploration wells in 2007,
all of which were productive. In 2008, we expect to drill as many as fifteen higher impact exploration wells, including ten in the Sacramento Basin, three in Coastal California and two in Texas. We
generally pursue higher impact exploration activities in areas where we have a strong operating base, proprietary knowledge and a well-established land position.

Capital Expenditures

We have developed an active capital expenditure program to take advantage of our extensive inventory of drilling prospects and other projects. Our exploration,exploitation and development capital expenditures, including amounts accrued and unpaid at December 31, 2007, were $310.1 million in 2007, up from $189.2 million in 2006, and weexpect that they will be approximately $235.0 million in 2008. We expect to spend approximately 55% of the budgeted amount on projects in the Sacramento Basin, 30% in the Coastal Californiaregion and 15% in Texas. Included in the budget is $25.0 million for exploration projects. The aggregate levels of capital expenditures for 2008, and the allocation of those expenditures, aredependent on a variety of factors, including the availability of capital resources to fund the expenditures and changes in our business assessments as to where our capital can be most profitablyemployed. Accordingly, the actual levels of capital expenditures and the allocation of those expenditures may vary materially from our estimates. The following summarizes certain significant aspectsof our capital spending program in 2007 and 2008:

Coastal CaliforniaExploitation and Development

In the coastal California area, we drilled five new wells in 2007 (including one higher impact exploration well), all of which were productive. We also performedeleven workovers and recompletions. In 2008, we plan to drill three wells and perform five workovers and recompletions in the area. Our primary focus is on development activities in the West Montalvofield. Since acquiring the field in May 2007, we have drilled one well and initiated an aggressive workover, recompletion and return to production program on existing wells, a program that includedeight workovers in 2007. We plan to continue the program in 2008 and to drill two to three new development wells in the field, including one offshore well (which will be drilled from an onshorelocation). We also plan to commission a seismic survey to assist in designing and optimizing an infill development program.

Inthe Sockeye field, we continue to implement our waterflood program from platform Gail and are working on the evaluation and design of a possible expansion of the program. We are alsocontinuing to evaluate a possible expansion of our horizontal and multi-lateral well drilling activities to the Monterey formation in the field. In the Santa Clara field, we pursued a plan to returnplatform

46

Graceto production in 2007, redrilling three wells with limited success. Further drilling from the platform has been suspended pending additional geologic and engineering review.

Inthe South Ellwood field, the permitting process continues for our full-field development project. Key components of the project include an extension of our current fieldarea (which would effectively double the size of the existing field) and the installation of an onshore oil transport pipeline to replace the existing barge. Development of the extended lease area canbeaccomplished from our existing platform, platform Holly. We anticipate receiving the draft environmental impact report for this project in the first half of 2008 with project approval and startupexpected in 2009.

Sacramento BasinExploitation and Development

In the Sacramento Basin, we continue to pursue our infill drilling program in the greater Grimes and Willows fields. We drilled 122 wells in the basin in 2007(80% of which were productive) and performed 113 workovers and recompletions. Of the 122 completed wells, 60 were drilled to non-proved locations and are therefore considered "exploratorywells" as defined in SEC Regulation S-X; we consider two of those wells to be higher-impact exploration wells. We currently have five drilling rigs and five workover/completion rigsworking in the basin and expect to drill over 110 new wells and perform more than 125 workovers and recompletions there in 2008. As of December 31, 2007, we had identified 520 drillinglocations in the basin, and we anticipate identifying additional locations as we pursue exploitation and development opportunities there.

Wecontinue to test and evaluate potential downspacing opportunities in the basin as well as new methods of improving productivity and reducing drilling costs. In particular, we haveinitiated a hydraulic fracturing program targeting the Forbes and deeper formations, a program that could potentially enhance production and reserves significantly. The strategy of using hydraulicfracturing to enhance oil and natural gas production and recovery is a well established and proven process, although we have not used it in our existing completions and, to our knowledge, it has notbeen widely used in the basin by other operators. We initiated a fracture stimulation program by testing the process on three wells in November 2007. Although the production history on thethree test wells is limited, early indications of the potential from fracturing are encouraging. We currently plan to perform between 20 and 50 fractures in 2008, but this estimate could changesignificantly depending on the success of the program. As of December 31, 2007, our acreage position in the basin had grown to approximately 193,000 net acres (236,000 gross).

TexasExploitation and Development

In Texas, we drilled nine new wells in 2007, all of which were productive, and performed 253 workovers and recompletions. In 2008, we plan to drill five wells andperform over 150 workovers and recompletions there.

Ourfocus in Texas has been on the redevelopment of the Hastings complex. This program has consisted principally of returning idle wells to production, increasing the lift capacity ofexisting wells, working over and recompleting existing wells in different producing sands, significantly upgrading surface facility fluid handling capacity and increasing water injection capabilities.In addition, we drilled five infill replacement wells in the Hastings complex in 2007, targeting unswept and undepleted sands.In 2008, we expect to continue our workover and recompletion program in an effort to further increase production and reserves. We also will focus on lowering operating expenses in 2008 as we reduceour remediation and redevelopment activities at the complex.

Wealso initiated a workover and recompletion program in the Manvel field, which produces from the same formation and exhibits operating characteristics that are similar to those of theHastings complex. In 2007, we performed 23 workovers and recompletions and focused on upgrading facilities to handle greater production volumes. In 2008, we plan to accelerate our workoverprogram and to drill up to three development wells. Our plans in Texas for 2008 also include drilling two to three additional

47

developmentwells in some of our other fields to demonstrate and assess new exploitation opportunities.

Higher Impact Exploration Activities

In addition to the exploitation and development activities described above, we devoted approximately $14.4 million to higher impact exploration activitiesin 2007, including $5.8 million on drilling. We generally consider a well to be a higher impact exploration well when it is either a new field wildcat or a new-pool test (i.e., awell on a structural feature or other type of trap already producing oil or natural gas but outside the known limits of the producing area). We drilled three higher impact exploration wells in 2007,all of which were productive. In 2008, we expect to drill as many as fifteen higher impact exploration wells, including ten in the Sacramento Basin, three in Coastal California and two in Texas. Wegenerally pursue higher impact exploration activities in areas where we have a strong operating base, proprietary knowledge and a well-established land position.

We have developed an active capital expenditure program to systematically exploit our extensive inventory of drilling prospects and other projects. We expect that
our exploration, exploitation and development capital expenditures, which were $240 million in the first nine months of 2007, will be approximately $320.0 million for the year. We increased our
previous estimate of 2007 capital expenditures due primarily to higher than expected capital expenditures associated with increases in fluid processing capacity in the Hastings complex, an increase in
the number of wells expected to be drilled in the Sacramento Basin and increased activity in the West Montalvo field. For 2007 as a whole, we anticipate drilling or spudding approximately 150 gross
wells, compared to 70 gross wells drilled in
2006. We currently estimate our inventory of drilling locations to be approximately 650. The following summarizes certain significant aspects of our capital spending program to date in 2007:

Coastal CaliforniaExploitation and Development

In the Coastal California area, we are focusing on development activities in the West Montalvo field, where we have drilled one well and initiated an aggressive
workover, recompletion and return to production program on existing wells since acquiring the field in May 2007. On platform Grace in the Santa Clara field, facilities construction is complete and we
have completed our first well. We expect to see production from the platform in the fourth quarter. In the Sockeye field, we are continuing to implement our waterflood program from platform Gail and
are working on the evaluation and design of a possible expansion of the program. We are also continuing to evaluate a possible expansion of our horizontal-well drilling activities to the
Monterey formation in the Sockeye field. In the South Ellwood field, the permitting process for a full-field development project, including a lease extension, is continuing. We expect to
receive the draft environmental impact report for the project early in 2008 and to commence work on the project in 2009.

Sacramento BasinExploitation and Development

In the Sacramento Basin, we continue to pursue our infill drilling program in the greater Grimes and Willows fields. We spudded 101 wells in the basin in the
first nine months of 2007 and expect to drill approximately 130 wells for the year. In addition, we expect to achieve our target of 100 well workovers and/or recompletions in the basin
during the year. We continue to test and evaluate

29

potential
downspacing opportunities, as well as new methods of improving productivity and reducing drilling costs. In particular, we have initiated a hydraulic fracturing program targeting the Forbes
and deeper formations, a program that could potentially enhance production and reserves from these fields. We fracture stimulated the initial wells in the basin in November 2007, and plan to
fracture a number of additional wells there during 2008. The strategy of using hydraulic refracturing to enhance oil and natural gas production and recovery is a well established and proven process,
although it is not currently employed in the Sacramento Basin. As of September 30, 2007, our acreage position in the basin had grown to approximately 187,000 net acres (235,000 gross).

TexasExploitation and Development

In Texas, we have continued our workover and recompletion program in the Hastings complex, focusing primarily on increasing lift capacity through electrical
submersible pump conversions and improving fluid handling capacity. Our objective is to reach 500,000 Bbls/d of total fluid handling capacity by year end (up more than 200% from approximately 150,000
Bbls/d at the time of acquisition). In addition, we drilled five infill replacement wells in the Hastings complex in the first nine months of 2007. Although we are still evaluating this program, we
are not planning any additional replacement wells at this time. Also, we initiated a workover and recompletion program in the Manvel field, which produces from the same reservoir and exhibits similar
operating characteristics to the Hastings complex.

Higher Impact Exploration Activities

We expect to drill up to seven higher impact exploration wells in 2007, including six in the Sacramento Basin and one in Coastal California. We drilled one higher
impact exploration well in the first nine months of the year, a successful well in the Sacramento Basin. We spudded the Coastal California well in September and are currently running logs. We are in
the process of drilling a second higher impact exploration well in the Sacramento Basin, and expect to spud up to four additional wells in the basin in the fourth quarter.

The
aggregate levels of capital expenditures for 2007 and 2008, and the allocation of those expenditures, are dependent on a variety of factors, including the availability of capital
resources to fund the expenditures, the availability of service contractors and equipment, permitting issues, weather, costs of equipment and third-party services, limits on the number of activities
that can be conducted at any one time on our offshore platforms and changes in our business assessments as to where our capital can be most profitably employed. Accordingly, the actual levels of
capital expenditures and the allocation of those expenditures may vary materially from the estimates described above.

We have developed an
active capital expenditure program to systematically exploit our extensive
inventory of drilling prospects and other projects. We expect that our
exploration, exploitation and development capital expenditures will be approximately
$270.0 million in 2007, of which $150.1 million was spent in the first
half of the year. During 2007, we anticipate drilling between 140 and 165 gross
wells, up from 70 gross wells drilled in 2006. We currently estimate our
inventory of drilling locations to be in excess

27

of 650.
The following summarizes certain significant aspects of our capital spending
program to date in 2007:

Coastal CaliforniaExploitation
and Development

In the Coastal California
area, we are focusing on the commencement of development activities in the
recently-acquired West Montalvo field and have initiated a workover and
recompletion program on existing wells in the field. On platform Grace in the
Santa Clara field, facilities construction is nearing completion and we expect
to begin drilling operations in the third quarter. In the Sockeye field, we are
continuing to implement our waterflood program from platform Gail and are
working on the evaluation and design of a possible expansion of the program. We
are also continuing to evaluate a possible expansion of our horizontal-well
drilling activities to the Monterey formation in the Sockeye field. In the
South Ellwood field, the permitting process for a full-field development
project, including a lease extension, is continuing. We currently expect to
receive the draft environmental impact report for the project during the third
quarter of 2007 and are anticipating final project approval in late 2008.
However, we cannot assure you that the project approval will be obtained on the
schedule we anticipate or at all.

Sacramento BasinExploitation
and Development

In the Sacramento Basin,
we continue to pursue our infill drilling program in the greater Grimes and
Willows fields. We spudded 69 wells in the basin in the first six months of
2007 and are on course to drill more than 120 wells for the year, as planned.
In addition, we expect to achieve our target of 100 workovers and/or
recompletions performed in the basin during the year. We continue to test and
evaluate potential downspacing opportunities as well as new methods of
improving productivity and reducing drilling costs. As of June 30, 2007,
our acreage position in the basin had grown to approximately 168,000 net acres
(195,000 gross).

TexasExploitation
and Development

In Texas, we have
continued our workover and recompletion program in the Hastings complex,
focusing primarily on increasing lift capacity through electrical submersible
pump conversions and improving water handling/injection capability. In
addition, we spudded three infill replacement wells in the Hastings complex in
the first half of 2007. Two additional replacement wells are planned with
potential for an additional 15 to 20 wells depending on the success of the
initial program. Also, we initiated a workover and recompletion program in the
recently-acquired Manvel field that is similar to the ongoing program in the
Hastings complex.

Higher Impact
Exploration Activities

We expect to drill approximately nine higher impact
exploration wells in 2007, including six in the Sacramento Basin, two in
Coastal California and one in Texas. We drilled one well in this category in
the first half of the year, a successful well in the Sacramento Basin. Five
higher impact exploration wells are expected to spud in the third quarter,
including two in Coastal California and three in the Sacramento Basin.

28

The
aggregate levels of capital expenditures for 2007, and the allocation of those
expenditures, are dependent on a variety of factors, including the availability
of capital resources to fund the expenditures, the availability of service
contractors and equipment, permitting issues, weather, limits on the number of
activities that can be conducted at any one time on our offshore platforms and
changes in our business assessments as to where our capital can be most
profitably employed. Accordingly, the actual levels of capital expenditures and
the allocation of those expenditures may vary materially from the estimates
described above.

We have developed an
active capital expenditure program to take advantage of our extensive inventory
of drilling prospects and other projects. We expect that our exploration,
exploitation and development capital expenditures will be approximately
$230.0 million in 2007, of which $70.1 million was spent in the first
quarter of the year (excluding the effect of changes in accrued capital
expenditures). The following summarizes certain significant aspects of our
capital spending program in 2007:

Coastal CaliforniaExploitation
and Development

In Coastal California, we continued our horizontal
development drilling program in the Monterey formation in the Sockeye field
during the first quarter of 2007. We will evaluate the performance of our three
horizontal wells in the field over the next several quarters. Based on
encouraging results to date, we are also evaluating the possibility of
expanding the waterflood in the Sockeye field. In addition, we are continuing
to pursue the return to production of platform Grace, although we do not expect
material production from the platform in 2007. In the recently acquired West
Montalvo field, we plan to spud our first development well in the second
quarter. In addition, we will be implementing an aggressive workover program on
the existing producing wells.

Sacramento BasinExploitation
and Development

In the Sacramento Basin,
our primary focus is on infill drilling in the greater Grimes and Willows
fields. Drilling activities accelerated in the first quarter of 2007 as we
increased the number of rigs drilling in these fields from three to six. We
spud 34 wells in the basin during the first quarter and we plan to drill over
120 wells there during 2007. Our drilling in this area includes a significant
number of wells drilled to locations that are not on our reserve report, and
are targeted at expanding reserves and the boundaries of the field. We continue
to expand our land position in this area. On March 31, 2007, our acreage
position in the basin consisted of approximately 164,000 net acres (192,000
gross).

TexasExploitation
and Development

In Texas, we expect to further increase production in
the Hastings complex through continuation of our aggressive recompletion and
workover program. In addition, we are planning to spud the first of several new
wells in the complex during the second quarter. Based on the results of these
wells, we may expand this program in the second half of 2007.

In the first quarter of 2007, we spud four wells in
the Giddings, AWP and Barbers Hill fields. We expect to complete and place on
production all four wells during the second quarter. We recently acquired
several fields in Texas, including the Manvel field, and plan to begin
remediation work in these fields during the second quarter. We believe that the
Manvel field is analogous to the Hastings complex. We plan to implement a
workover program at Manvel similar to our successful program in the Hastings
complex.

Higher
Impact Exploration Activities.In 2007, we expect to drill
approximately ten higher impact exploration wells, including six in the
Sacramento Basin, three in Coastal California and one in Texas. We drilled one
well in this category in the first quarter of the year. This well, which was
drilled in the Sacramento Basin, was successful.

The aggregate levels of
capital expenditures for 2007, and the allocation of those expenditures, are
dependent on a variety of factors, including the availability of capital
resources to fund the expenditures, the availability of service contractors and
equipment, permitting issues, weather, limits on the number of activities that
can be conducted at any one time on our offshore platforms and changes in our
business assessments as to where our capital can be most profitably employed.
Accordingly, the actual levels of capital expenditures and the allocation of
those expenditures may vary materially from the estimates described above.

We have developed an active capital expenditure program to take advantage of our extensive inventory of drilling prospects and other projects. Our exploration,
exploitation and development capital expenditures, including amounts accrued and unpaid at December 31, 2006, were $189.2 million in 2006, up from $83.6 million in 2005, and we expect
that they will be approximately $230.0 million in 2007. We expect to spend approximately 24% of the budgeted amount on projects in the Coastal California region, 56% in the Sacramento Basin and
20% in Texas. Included in the budget is $20.0 million for exploration projects, primarily in Coastal California and the Sacramento Basin. The following summarizes other significant aspects of our
capital spending program in 2006 and 2007:

Coastal CaliforniaExploitation and Development

2006

2007

New wells (including unsuccessful)

8

(3)

2-6

47

We
expect that our exploitation and development activities in the Coastal California region in 2007 will focus on continued infill development of the Monterey formation using
multi-lateral highly deviated wells. We are also evaluating the possibility of expanding waterflooding in the Santa Clara Federal Unit and are finalizing a development plan relating to the possible
return of platform Grace to production.

Sacramento BasinExploitation and Development

2006

2007

New wells (including unsuccessful)

60(8)

120

+

Recompletions/workovers (including unsuccessful)

34(3)

100

We
have six drilling rigs and two workover/completion rigs under contract in the Sacramento Basin as of March 15, 2007 and expect to continue our aggressive drilling program there
throughout 2007. Successful wells drilled in the basin in 2006 include one non-operated well; dry holes include one non-operated well and one that failed due to mechanical
problems that prevented the well from reaching the geologic objective. Of the 60 wells drilled in the basin in 2006, 47 were drilled to non-proved locations and are therefore considered
"exploratory wells" as defined in SEC Regulation S-X.

TexasExploitation and Development

2006

2007

New wells (including unsuccessful)

2(0)

6

Recompletions/workovers (including unsuccessful)

142(0)

100-200

In
2007, we expect to continue the recompletion and workover program we began in the Hastings complex following the completion of the TexCal acquisition. This program contributed to a
38% increase in average net production from the complex from March 2006 to December 2006.

Higher Impact Exploration Activities. In addition to the exploitation and development activities described above, we devoted
approximately $19.4 million to higher impact exploration wells in 2006. We completed five such wells during 2006, of which two were productive and three were dry holes. In 2007, we expect to
drill approximately ten higher impact exploration wells, including six in the Sacramento Basin, three in Coastal California and one in Texas.

The
aggregate levels of capital expenditures for 2007, and the allocation of those expenditures, are dependent on a variety of factors, including the availability of capital resources to
fund the expenditures, the availability of service contractors and equipment, permitting issues, weather, limits on the number of activities that can be conducted at any one time on our offshore
platforms and changes in our business assessments as to where our capital can be most profitably employed. Accordingly, the actual levels of capital expenditures and the allocation of those
expenditures may vary materially from the estimates described above.